What does the term "loss ratio" indicate in health insurance?

The term "loss ratio" in health insurance is an important metric that indicates the percentage of claims paid out by an insurer relative to the premium income that the insurer has received. This ratio essentially measures how much of the collected premiums are being used to pay for claims, which is crucial for evaluating the financial health of an insurance company.

When the loss ratio is calculated, it provides insights into the insurer's performance—specifically, how efficiently the premium income is being translated into claims payments. A lower loss ratio might suggest that the insurer is retaining more of the premium income as profit or covering their administrative expenses, while a higher loss ratio could indicate that the insurer is paying out more claims compared to what they earn in premiums, which might raise concerns about sustainability or profitability.

Understanding the loss ratio helps stakeholders make informed decisions regarding the insurer's operations and overall viability. Other options presented do not accurately capture this specific financial performance measurement; they either reference different financial aspects or metrics that do not directly relate to the calculation of claims versus premiums.